SEC News Digest

Enforcement proceedings

The Commission has denied the petition filed by Michael C. Pattison, CPA, to lift the temporary suspension imposed on him pursuant to Commission Rule of Practice 102(e)(3). The Commission has also set the matter down for a hearing before an administrative law judge.

Pattison was temporarily suspended from appearing or practicing before the Commission after a jury in the U.S. District Court for the Northern District of California found that Pattison had violated the federal securities laws by circumventing his company's internal accounting controls and falsifying books, records, and accounts in connection with the backdating of stock options from 2000 to 2005. The district court permanently enjoined Pattison from violating the federal securities laws. (Rel. 34-64598; AAE Rel. 3287; File No. 3-14323)

SEC Charges FDA Chemist with Additional Insider Trading

The Commission today announced the filing of an amended complaint in its insider trading action against a chemist who worked at the U.S. Food and Drug Administration (FDA). The amended complaint, filed in the U.S. District Court for the District of Maryland (Greenbelt Division), charges Cheng Yi Liang with trading in advance of a 28th drug approval announcement and through an additional brokerage account in the name of a sixth nominee.

On March 29, 2011, the SEC filed a complaint in federal court in Maryland alleging that Liang illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded companies, garnering more than $3.6 million in illicit profits and avoided losses. Today’s amended complaint alleges that Liang traded in advance of a 28th announcement involving a 20th publicly-traded company, XenoPort, Inc.

According to the SEC’s amended complaint, Liang accessed a confidential FDA database that contained critical documents and information about the FDA’s review of Horizant, a drug developed by XenoPort to treat restless leg syndrome. Between February 22 and March 24, 2011, Liang purchased 43,000 shares of XenoPort in accounts in the name of three nominees. On March 29, 2011, Liang was charged by the SEC and arrested by the criminal authorities. One week later, on April 6, 2011, XenoPort announced that the FDA had approved Horizant, which caused XenoPort’s shares to rise 56% and resulted in imputed profits to Liang of over $126,000.

The amended complaint further alleges that Liang used an eighth brokerage account in the name of his 87-year-old father, Zhaozheng Liang, to trade beginning in January 2011 and in advance of the XenoPort and Clinical Data, Inc. announcements. The amended complaint names Zhaozheng Liang as a relief defendant.

The SEC’s amended complaint alleges that Liang violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks a permanent injunction against future violations, disgorgement of unlawful trading profits and losses avoided plus prejudgment interest, and a financial penalty. The SEC’s amended complaint names Liang’s wife Yi Zhuge and the account holders for the eight trading accounts Liang used – Liang’s mother Hui Juan Chen, his son Andrew Liang, his father Zhaozheng Liang, Shuhua Zhu, Zhongshan Chen, and Honami Toda – as relief defendants for the purpose of recovering ill-gotten funds to which they have no legitimate claim.

The Securities and Exchange Commission announced today that it charged Association for Betterment through Education and Love, Inc. (ABEL) and its principal, Anthony O. DeGregorio, Sr., age 81 and resident of New Jersey, with offering and selling securities in unregistered transactions and obtained an emergency court order to halt the offerings and preserve assets for investors. The Complaint also names Margherita DeGregorio as a relief defendant.

The Commission's complaint, filed in the District of New Jersey, alleges that ABEL and DeGregorio have raised more than $1.3 million through unregistered securities offerings since ABEL’s inception in 1989, obtaining more than $1 million in the last four years through offering purported “CDs.” According to the Complaint, ABEL’s purported purpose was to invest funds raised in securities offerings and use investment profits to pay a “guaranteed” return to investors, and donate a portion to charity. The Complaint alleges that ABEL and DeGregorio offered securities in the form of charitable gift annuities, without complying with state registration requirements, and offered purported CDs that carried above-market interest rates. The Complaint also charges that, at times, ABEL used the proceeds from new offerings of securities to make promised interest payments to earlier investors.

The Complaint charges ABEL and DeGregorio with violating Sections 5(a) and (c) of the Securities Act of 1933.

Judge Freda L. Wolfson of the United States District Court for the District of New Jersey issued a temporary restraining order, which prohibits ABEL and DeGregorio from committing further violations of the federal securities laws and places a freeze on their assets and the assets of Margherita DeGregorio. In its enforcement action, the Commission is seeking additional relief, including orders enjoining ABEL and DeGregorio, preliminarily and permanently, from committing future violations of the foregoing federal securities laws, and a final judgment ordering ABEL and DeGregorio to disgorge their ill-gotten gains plus prejudgment interest, and assessing civil penalties against them. [SEC v. Association for Betterment Through Education and Love, Inc., et al., Civil Action No. 11-Cv-3183 (FLW) (D.N.J.)] (LR-21988)

SEC Charges Two Individuals With Orchestrating $560,000 Securities Fraud Through Their Company, Sovereign International Group, LLC

The Securities and Exchange Commission today charged Ronald Abernathy and Arthur Weiss with orchestrating a $560,000 securities fraud through their company, Sovereign International Group, LLC (SIG).

The SEC alleges that Abernathy and Weiss fraudulently obtained investor deposits by telling investors that they would use those funds to trade securities. According to the complaint, they used no investor funds to trade securities. Instead, Abernathy and Weiss misappropriated investor funds for their own personal use. Several investors have demanded that Abernathy and Weiss return their money. With the exception of a limited number of investors who received Ponzi-like payments, Abernathy and Weiss have failed to repay these investors. Instead, they have lulled the investors with various excuses for the delay and by promising repayment in the near future.

According to the SEC’s complaint filed in the Western District of Michigan, Abernathy and Weiss told investors that funds invested by SIG were earning a profit. The SEC further alleges that Abernathy and Weiss did not invest any of those funds and none of the investors earned any actual profits. Additionally, at different times during the scheme, Abernathy and Weiss have told investors that SIG is engaged in the trading of securities, receiving fees in connection with the monetization of multi-million and multi-billion dollar financial instruments, brokering the sale of fine art and, most recently, brokering the sale of and/or refining precious metal ore concentrate. They also falsely told prospective investors that Abernathy was appointed “the director of a highly exclusive group of investors who are purchasing a Major League Baseball Franchise” and that this group of investors includes billionaires Paul Allen (co-founder of Microsoft) and Ted Turner (founder of CNN). Despite their repeated promises of imminent multimillion dollar payouts to SIG from these purported business ventures, SIG, in its entire existence, has not earned any profits, realized any returns or generated any revenue from any business operations. SIG’s only income has consisted of money received from investors.

The SEC’s complaint charges Abernathy, Weiss and SIG with securities fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and the imposition of monetary penalties against all defendants.[SEC v. Ronald Abernathy, Arthur Weiss and Sovereign International Group, LLC, No. 1:11-cv-580 (W.D. Mich.)] (LR-21989)

Investment company act releases

Altegris Advisors, L.L.C. and Northern Lights Fund Trust

A notice has been issued giving interested persons until June 27, 2011, to request a hearing on an application filed by Altegris Advisors, L.L.C. and Northern Lights Fund Trust for an order exempting them from Section 15(a) of the Investment Company Act and Rule 18f-2 under the Act. The order would permit the applicants to enter into and materially amend subadvisory agreements without shareholder approval. (IC-29689 – June 1)

Self-regulatory organizations

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by NYSE Amex to amend the fees relating to the sale of trading licenses (SR-NYSEAmex-2011-35) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64581)

A proposed rule change filed by New York Stock Exchange to amend the Exchange price list (SR-NYSE-2011-23) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64582)

A proposed rule change filed by NASDAQ OMX BX (SR-BX-2011-031) to amend the Fee Schedule of the BOX has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64583)

A proposed rule change filed by NASDAQ OMX PHLX to conform Exchange rules (SR-Phlx-2011-69) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64584)

A proposed rule change filed by EDGX Exchange (SR-EDGX-2011-16) relating to amendments to the EDGX Exchange, Inc. fee schedule has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64586)

A proposed rule change filed by NASDAQ OMX PHLX to permit the listing of series with $0.50 and $1 strike price increments on certain options used to calculate volatility indexes (SR-Phlx-2011-74) has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64589)

A proposed rule change filed by NASDAQ OMX PHLX to allow qualified Exchange members to act as off-floor option specialists in one or more options classes (SR-Phlx-2011-79) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64591)

A proposed rule change filed by the Chicago Board Options Exchange to amend CBOE Stock Exchange transaction fees to change the maker/taker fee to a flat fee (SR-CBOE-2011-051) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64592)

A proposed rule change filed by NYSE Arca amending the NYSE Arca Equities Schedule of Fees and Charges for Exchange Services to introduce two new pricing tiers, Investor Tier 1 and Investor Tier 2 (SR-NYSEArca-2011-34) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64593

A proposed rule change filed by NASDAQ OMX PHLX (SR-Phlx-2011-76) relating to the appeal fee has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64594)

Approval of Proposed Rule Change

The Commission approved a proposed rule change submitted by the Financial Industry Regulatory Authority (SR-FINRA-2011-020), pursuant to Section 19(b)(2) of the Securities Exchange Act of 1934, relating to FINRA’s Trading Activity Fee rate for transactions in covered equity securities. Publication is expected in the Federal Register during the week of June 6. (Rel. 34-64590)

Securities Act Registrations

The following registration statements have been filed with the SEC under the Securities Act of 1933. The reported information appears as follows: Form, Name, Address and Phone Number (if available) of the issuer of the security; Title and the number and/or face amount of the securities being offered; Name of the managing underwriter or depositor (if applicable); File number and date filed; Assigned Branch; and a designation if the statement is a New Issue.

Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

5.06

Change in Shell Company Status

6.01

ABS Informational and Computational Material.

6.02

Change of Servicer or Trustee.

6.03

Change in Credit Enhancement or Other External Support.

6.04

Failure to Make a Required Distribution.

6.05

Securities Act Updating Disclosure.

7.01

Regulation FD Disclosure

8.01

Other Events

9.01

Financial Statements and Exhibits

8-K reports may be viewed in person in the Commission's Public Reference Branch at 100 F Street, N.E., Washington, D.C. To obtain paper copies, please refer to information on the Commission's Web site at http://www.sec.gov/answers/publicdocs.htm. In most cases, you can view and download this information by using the search function located at http://www.sec.gov/edgar/searchedgar/companysearch.html.